Apple’s Supply Chain Edge is Under Pressure

As an example of how to operate a globalised supply chain, Apple is frequently hailed as the benchmark. However, according to an article dated 23rd October by Tim Culpan for Bloomberg “Apple Inc. has lost its supply chain mojo.” We tend to think of such giants as having bulletproof supply chains, able to withstand those same snags smaller companies struggle with: yet that’s not always the case.

What Apple Gets Right

Whilst consumers might focus on the cool gadgets and the Apple brand, those in the supply chain industry look at Apple as a model to replicate in terms of its “incredible manufacturing discipline”, and have done since as early as 1996. It’s cited in university lecture theatres and no doubt is used in countless final exam answers. The Apple supply chain model – which starts at the R&D level and travels through Concept Testing all the way to Launch and Review – is a model which has served Apple immensely well.

Apple stands out as an industry leader for everything from its multiple relationships with clients to its unique raw materials. This is made all the more impressive when you realise that Apple themselves don’t own a single factory.

So, What’s Gone Wrong with Apple’s Supply Chain?

With the release of new manufacturing data from Apple suppliers in the Far East, there are questions surrounding the successful supply of the OLED screens that Apple is adopting for the first time with the Apple X. Supply is limited, supplier margins are tight and Apple is also dependent on their rivals Samsung to supply the OLED screens.

As Tim Culpan in the Bloomsberg article states: “With rival brands like Samsung and Huawei becoming increasingly adept at working with suppliers, Apple risks losing its hardware edge at a time when its iOS platform is also under fire. It simply can’t afford to make such a mistake again.”

The problem is perhaps testimony to the fact that Apple has created such a lean supply chain it doesn’t have room to flex. The announcement to move to OLED screens, which are dubbed ‘TrueDepth’, softened sales of the iPhone 8 as those who could afford the price tag have opted to wait for Apple X instead. However, based on the manufacturing data coming from their suppliers it doesn’t look like Apple will be able to deliver the anticipated number of Apple X as they may need in order to meet supply. After soft sales of the iPhone 8, Apple’s failure to meet demand for the Apple X in the peak Christmas season could have a serious impact on their share price.

Of course, it may be the case that Apple has faced and overcome similar supply chain challenges on previous launches that haven’t been widely reported. However, we’re hearing about this issue predominantly due to changes to Taiwanese law, making manufacturing data available which hasn’t previously been. Whereas before, the data regarding monthly sales figures was hidden under wraps, it’s now been laid bare for analysts to work their magic on. Therefore, we’re not to know how many times similar problems have existed and we simply haven’t known about them. Nonetheless, the analysts have flagged up a problem looming on the horizon.

It’s Not All Bad News

Despite the supply chain problems, Apple is once again being hailed a success from another angle for its sustainable supply chain. Greenpeace has stated that Apple is the most environmentally friendly major global technology company in recognition of its shift towards the use of 100% renewable energy. Apple is currently constructing a new HQ which will run completely on renewable energy thanks to solar panel installations. The Greenpeace report states that Apple has “played a catalytic role within its IT supply chain, pushing other IT data centre and cloud operators who help deliver pieces of Apple’s corner of the internet to follow their lead in powering their operations with renewable energy.”

Greenpeace has particularly praised Apple for its objective to create a ‘closed-loop supply chain’ which will seek to reuse material which has been previously consumed. Additionally, Apple has been praised for being a pioneer as it eliminates its use of harmful chemicals such as polyvinyl chloride (PVC) plastic and brominated flame retardants (BFRs).

Nonetheless, despite being ahead of the game, it was still ‘only’ graded as B- for its progress on sustainability issues. This means there is still a huge amount of progress which needs to be made, and it won’t deflect from the supply chain problem with the iPhone X.

The Balance of Reports

It’s interesting that these two reports are sitting alongside each other in the same time frame. They go to show that even giants such as Apple aren’t immune to the same push and pull complexities as other global supply chains. Everyone has their problems and strengths. Where it would be wrong is to think that the two issues are inherently related instead of standalone issues. Apple isn’t facing a delay with the iPhone X because it’s been ploughing time and resources into its sustainability and environmental issues – the two aren’t connected. What it does show, however, is that global supply chains in their balance of supply and demand are incredibly complex and intensely difficult to get it all right.

Are the Naysayers Right?

We will know, very soon, if there is indeed a problem or whether it is a storm in a teacup. Investors and some analysts have been quick to explain the data away as a minor blip which has been caused by various bottlenecks compounding, and it can be plugged and smoothed over. However, others are of the belief that this is a huge problem and reflects errors being made all the way up to board level. Time will tell.

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